Sorry, you have not enabled Javascript for your internet browser, so some of our website's pages may not render as fully as intended.Please Click here for easy instructions on how to enable Javascript on your browser or consult your IT support staff for help.

Keep up to date with a free subscription, courtesy of HSBC

Working in tandem

“There are nine million bicycles in Beijing,” sang the Georgian-British pop star Katie Melua. “That’s a fact.” But of course it probably wasn’t: according to Xinhua, even by 1989 there were only about four million bicycles in the capital, and in the decades since then private cars have certainly surpassed bicycles in popularity.

But there are suggestions that bicycle usage is making a comeback, not only in Beijing but across many major cities as well. In WiC339 we reported on the Shanghai start-up Mobike, a bike sharing service described as “Uber for bicycles”. That title might now seem more appropriate for Ofo (the spelling of which should maintain the lowercase ‘o’, because its name was chosen due to its resemblance to a bike), the Beijing-based bike rental company, as an acquisition by Didi could be in the offing.

The start-up was founded in 2014 as a student project at Peking University. Since then Ofo has expanded to 20 cities and a fleet of roughly 70,000 bicycles, but according to iHeima, a portal, the firm’s target areas are still the college campuses.

The strategy has allowed Mobike and Ofo to exist in harmony to some extent as Mobike’s primary area of operation is off campus. But the investment from Didi might disrupt this balance.

Didi is not the first company to invest. According to Caijing magazine it raised Rmb9 million ($1.35 million) in an earlier round of fundraising. Techcrunch also reports that in September Ofo raised a further $4million from venture capital investors. But Didi’s capital injection is the largest, at the unspecified sum of “tens of millions of dollars”.

In a statement Didi said, “Didi and Ofo will explore strategic cooperation in urban ridesharing, including offering a quality bike-sharing experience on Didi’s platform.” This means that in the future users will be able to find, reserve and ride Ofo’s bikes through the Didi app. Caijing reports Didi intends to offer more ride-hire related services from its strategic partners through its own app, effectively developing Didi as a one-stop-shop for on-demand transport.

Techcrunch suggests the partnership with Ofo might result in Didi expanding into food and other delivery services, much like its erstwhile rival Uber has done with UberEats. Techcrunch envisions “an army of students on bicycles” racing across the city, acting as couriers.

Certainly the investment in the bicycle network could provide a solution to the “last mile” problem that courier services have been tackling for years. But as iHeima points out, Ofo may not be entirely practical as a crowd-sourced, on-demand delivery service because users are dependent upon the availability of Ofo’s bicycles (unlike the model for Uber and Didi, where each driver provides their own car).

Although Mobike recently raised $100 million in a fundraising round, Ofo’s partnership still spells potential disaster for the Shanghai-based firm. Ofo already holds an advantage in its prices. Mobike rental rates are Rmb1 per half an hour, while Ofo’s are Rmb0.01 per minute. Mobike users are also required to make a deposit of Rmb299 but Ofo’s deposit is lower at Rmb99. Part of the reason why Ofo has been able to offer significantly cheaper fares is because its initial costs were lower. Each Mobike costs over Rmb2,000 to produce (the bicycles are designed to go unserviced for four years, with the goal of covering their own cost within two), but an Ofo cycle is only Rmb280, according to iHeima.

Mobike’s founder once worked at Uber, and his smartphone-based business model is similar. The fact that Ofo could become part of Didi means the forthcoming bike war could end up as a peddle-powered rerun of Uber’s duel with Didi. If the outcome is repeated that would suggest an eventual merger of the two bike-hiring firms could be on the cards too.

The Week in China website and the weekly magazine publications are owned
and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is
involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these
publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will
therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.